BOOK REVIEW: Steppenwolf

This "review" might best be described as a somewhat bookish carom resulting from: a text conversation with a friend immediately after the 2024 election result became apparent, a text conversation that friend had with a family member on the same topic, a not-so-random quote that family member tossed into their conversation from the book Steppenwolf and from Steppenwolf being one of my top "think" bands. (Yes, I mean that.)

Okay, let's see how THIS all gets tied together…

The Quote That Kicked It Off

Here is the quote that was forwarded by my friend on November 7, 2024…

Every age, every culture, every custom and every tradition has its own character, its own weakness and its own strength, its beauties and ugliness; accepts certain sufferings as matters of course, puts up patiently with certain evils. Human life is reduced to real suffering, to hell, only when two ages, two cultures and religions overlap. A man of the Classical Age who had to live in medieval times would suffocate miserably just as a savage does in the midst of our civilization. Now there are times when a whole generation is caught in this way between two ages, two modes of life, with the consequence that it loses all power to understand itself and has no standard, no security, no simple acquiescence.

That seemed to be a freakishly apropos commentary on current events. I literally stopped watching all network news, local news, late night shows and news/interview shows as of 10:00pm November 5, 2024. Listening to the so-called journalists and hosts prattle on about events when none had helped actually educate the public from committing such an atrocious democratic "own-goal" literally made me feel nauseous. (It still does and I haven't returned to these programs since.) As another great wit once put it, it became clear to me that by NOT watching any news, I might run the risk of being UN-informed but by WATCHING any news, I would be consistently MIS-informed so what was the point?

At that point, an extra three hours per day was freed and I had plenty of time for other hobbies. This quote became stuck in my head and I thought.. I'm a fan of Steppenwolf the band, I've seen enough interviews of John Kay to know Steppenwolf was absolutely NOT some mindless hard rock biker band but had material addressing serious philosophical and cultural issues… Monster. For Ladies Only. It's Never Too Late. Move Over. The Pusher. Snowblind Friend. I knew the band name came from the book but I had never read the book. Now having a lot of extra free time, I decided to read the book. I picked up a copy at the local Barnes & Noble on November 7 and completed reading it the next day and some themes have been stuck in my head ever since.

Steppenwolf – Synopsis

The book Steppenwolf is ninety eight years old as of 2025. It was written by German author Herman Hesse between 1924 and 1927 and published in 1927. Given the age of the book, I don't think I will spoil the plot or the ending through this analysis. If you haven't read the book but think you might based upon this essay, then by all means STOP HERE and come back when you're done.

The short Herd Notes of the entire book would be this…

The book Steppenwolf uses a literary device of a book within a book to first define a shorthand metaphor using the "inner" book to more clearly describe a concept that is then addressed in more detail in the arc of the "outer" book. (In reality, that outer book is also given a treatment as a manuscript written by the protagonist and left to another person to find but that abstraction doesn't move the story. Probably a little too "meta" even in 2025…) The protagonist of the outer book is an older man named Harry Haller who appears to be a man of some financial means who is spending his time traveling from town to town, renting a room for a month or two, visiting the town's libraries and taking in their unique books and local culture, then moving on to the next town. It seems clear Harry is in a perpetual melancholic frame of mind. The events of the book take place over the course of his stay at one such town over maybe four weeks.

Upon arriving in town, a stranger he encounters by chance is promoting a local entertainment establishment of some sort and leaves him a copy of a book called Der Steppenwolf which he reads and whose text is included in full in the outer book. The inner book described the circumstances of a steppe wolf living in regions between the wild steppe areas of the countryside and urban cities. These steppenwölfe become increasingly lost and adrift as the gulf in environment between the wild and modern industrialized society grows ever larger – they reach a state where they never feel comfortable in either environment and always feel drawn to the "other" environment, no matter which one they're currently in. This concept resonates with Harry and intensifies his despondency.

Harry eventually reaches a point of despondency where he has silently decided to end his life and he heads out for a meal. After finishing the meal, he delays heading home, wandering around various establishments and eventually enters a dance hall where he encounters a beautiful young woman who immediately begins chatting him up, distracting him enough from his prior thoughts and the two begin seeing each other over the days and weeks as she gets him to open up and enjoy things he previously shunned. Eventually it becomes apparent that this woman is acquainted with the man who gave Harry the copy of Der Steppenwolf and he operates what the book terms a "magic theater". Based on the narrative, one can either conclude this venue was meant to be interpreted as a psychedelic alt-world or an actual opium den filled with dazed patrons on all sorts of drug-inspired trips.

Harry is granted access by the host to the "magic theater", clearly partakes of something made available to him, and experiences a world with a room with a seemingly limitless set of doors. His host explains he can choose as many of the experiences behind each door as desired. Over the coming hours, Harry enters five different doors, experiencing different fantastical things widening his perspective. By this point several weeks into his relationship with the woman, the fifth door he chooses involves a situation where his host is lying beside the woman and his altered state leads him to remember something she said to him days before that her only goal was to get him to open up the point he could love something so much he could kill it. In his altered state, his illogical mind takes the opportunity to do exactly that, "killing her" with a knife, which results in him eventually coming back to reality where the host confirms he didn't kill anyone but clearly did not learn the correct lessons from the trips he took.

Many other analyses of Steppenwolf mention that the somewhat obtuse, book-in-a-book-in-a-book concept was pretty "meta" for its day and certainly the narrative involving the experiences in the magic theater had obvious sex and drug references that might have made the book a popular counter-culture hit later in the 1900s. These analyses also point out that Hesse was somewhat frustrated that many perceived the book as somehow glorifying suicide and making it sound intellectual. Hesse stated such interpretations completely missed the point he was making that in a world torn between incompatible extremes, it could very well be that the only rational approach to surviving is by re-inventing yourself. Maybe more than once. Maybe into multiple existences, each better optimized for the unique challenges and insanities of one extreme or another.

Steppenwolf – Highlights

What is a modern reader of the twenty first century likely to draw from a book published in 1927?

Plenty.

A modern reader of Steppenwolf will encounter prose throughout the narrative that will literally bring time to a HALT as a key analogy is pondered. There were several that made me put the book down and sit silently for twenty or thirty minutes pondering the insight someone writing so many years ago must have had to craft something so profoundly suited for the present. Here are a few examples.

An aside on false reverence for figures of the past -- At one point in the book, Harry is having a conversation about some philosophical concept and mentions the German author Goethe with great reverence, to which he hears this in response:

You take the old Goethe too seriously, my young friend. You should not take old people who are already dead so seriously. It does them injustice. We immortals do not like things to be taken seriously. We like joking. Seriousness is an accident of time. It consists, I don’t mind telling you in confidence, in putting too high a value on time. For that reason, I wished to be a hundred years old. In eternity, however, there is no time, you see. Eternity is a mere moment, just long enough for a joke.

This serves as a good reminder that worshiping those in the past binds us to their blind spots as well. Much like extremists in America claim to worship the “Founding Fathers” who were deeply flawed people, just like we are now.

An aside on wireless technology -- At one point early in the arc, the protagonist has a conversation with his landlady who gives him a tour of another room being rented to her nephew. The nephew is in his early 20s and his aunt (the landlady) mentions that he is very much into the latest fad of the day – "the wireless" – and has all sorts of technical paraphernalia related to crystal radios scattered about his room. This triggers an observation by the protagonist that is simply jaw-dropping.

We talked about the nephew and she showed me in a neighboring room his latest toy, a wireless set. There the industrious young man spent his evenings, fitting together the apparatus, a victim to the charms of wireless, and kneeling on pious knees before the god of applied science whose might had made it possible to discover after thousands of years a fact which every thinker has always known and put to better use than in this recent and very imperfect development. We spoke about this, for the aunt had a slight leaning to piety and religious topics were not unwelcome to her. I told her that the omnipresence of all forces and facts was well known to ancient India, and that science had merely brought a small fraction of this into general use by devising for it, that is, for sound waves, a receiver and transmitter which were still in their first stages and miserably defective. The principal fact known to that ancient knowledge was, I said, the unreality of time. This science had not yet observed it. Finally, it would, of course, make this “discovery,” also and then the inventors would get busy over it. The discovery would be made – and perhaps very soon – that there were floating around us not only the pictures and events of the transient present in the same way that music from Paris or Berlin was now heard in Frankfurt or Zurich, but that all that had ever happened in the past could be registered and brought back likewise. We might well look for the day when, with wires or without, with or without the disturbance of other sounds, we should hear King Solomon speaking, or Walter von de Vogelweide. And all this, I said, just as today we see is the case with the beginnings of wireless, would be of no more service to man than as an escape from himself and his sins, and a means of surrounding himself with an ever closer mesh of distractions and useless activities.

As I read that passage, my mind substituted "internet" for "radio" and was astounded at how well this description written in 1927 accurately describes the distraction generated by today's "wireless" technology. Distractions which absorb one hundred percent of our time with "information" that merits zero percent of our time and prevents us from contemplating matters of true importance to our literal, personal survival. Hesse wrote this book in the culture of pre-WWII Germany and accurately predicted the madness that would emerge if a leader rose to power who understood the power of mass media to distract and distort.

An aside on mass media slop… -- One day amid Harry's wanderings around town, he encounters an old acquaintance from college and is invited to dinner with the man and his wife. Conversation ensues and the man begins ranting about the mad ravings of some IDIOT writing to the local paper under the name Harry Haller about the coming dangers in the country. While the acquaintance knows the full name of the "idiot" and knows the full name of the man he invited to dinner, presumably Harry Haller is a very common name so the man didn't assume the two were one in the same. They were. After listening to his acquaintance berate this "idiot," Harry gets up, states he is that very idiot and storms out. He then realizes there seems to be little point in continuing to try to change public opinion against a rising tide of willful ignorance. He explains it this way to Hermine:

Now and again I have expressed the opinion that every nation, and even every person, would do better, instead of rocking himself to sleep with political catchwords about war guilt, to ask himself how far his own faults and negligences and evil tendencies are guilty of the war and all the other wrongs of the world, and that therein lies the only possible means of avoiding the next war. They don’t forgive me that, for, of course, they are themselves all guiltless, the Kaiser, the generals, the trade magnates, the politicians, the papers. Not one of them has the least thing to blame himself for. Not one has any guilt. One might believe that everything was for the best, even though a few million men lie under the ground. And mind you, Hermine, even though such abusive articles cannot annoy me any longer, they often sadden me all the same. Two-thirds of my countrymen read this kind of newspaper, read things written in this tone every morning and every night, are every day worked up and admonished and incited, and robbed of their peace of mind and better feelings by them, and the end and aim of it all is to have the war over again, the next war that draws nearer and nearer, and it will be a good deal more horrible than the last. All that is perfectly clear and simple. Any one could comprehend it and reach the same conclusion after a moment’s reflection. But nobody wants to. Nobody wants to avoid the next war, nobody wants to spare himself and his children the next holocaust if this be the cost. To reflect for one moment, to examine himself for a while and ask what share he has in the world’s confusion and wickedness – look you, nobody wants to do that. And there’s no stopping it, and the next war is being pushed with enthusiasm by thousands upon thousands day by day . It has paralyzed me since I knew it, and brought me to despair. I have no country and no ideals left. All that comes to nothing but decorations for the gentlemen by whom the slaughter is ushered in. There is no sense in thinking or saying or writing anything of human import, to bother one’s head with thoughts of goodness – for two or three men who do that, there are thousands of papers, periodicals, speeches, meetings in public and in private, that make the opposite their daily endeavor and succeed in it too.

Keep in mind, this quote is from a book published in 1927. Eight years before World War II started under Hitler's leadership, the entire country of Germany knew exactly where everything was headed. There were people who were speaking out years before Hitler took power who were simply overwhelmed by a growing share of the professionals and learned folk who concluded it was easier and more advantageous to fall in with the new thinking rather than fight to oppose it. The phenomenon and frustration he describes here is reflected today in machine generated content that can easily swamp any actual human thought on the internet and make it impossible to distinguish between human expression and machine slop.

Harry finds his perfect mate, Hermine -- As the story arc reaches the point where Harry encounters Hermine in the dance hall on what might have been his, ahem, last night out, a few aspects of the narrative immediately jump out in the minds of modern, post-#metoo-world readers. First, as one remembers Harry is likely a man in his fifties, quite old for 1925, it becomes immediately suspicious that he is suddenly greeted by a beautiful and very young woman who seems to be instantly attracted to him. The narrative is written primarily reflecting Harry's perspective so this initial encounter comes across as "hey, maybe I still got a little something going on here…" Of course, even when the book was new, readers eventually sussed out that Hermine was actually a prostitute and Harry was just the next desperate schlub to get set up for a longer term financial relationship. Hesse's real craft takes a bit more thinking to suss out.

As the narrative unfolds, Harry views this woman as the perfect woman. She is interested in all of his interests. She has the same opinions on all of the same current controversies as Harry. While she does try to get him to try new things, she is also content to sit with him for hours every day and talk endlessly about all of his interests and opinions. And her name? Hermine. The feminine form of Herman. The first name of the actual author of the real book. Hesse crafted much of the narrative between Harry and Hermine to critique a common tendency of people to accept unquestioning flattery from people while ignoring the absurdity and inappropriateness of the larger relationship. By choosing Hermine as the character name, Hesse was implicating himself in this behavior as well, describing a pattern where a man desires essentially himself as the ultimate partner. No challenges, No arguments. No strife. But no stretching, growing, or learning either. Given Hesse's psychological state in the period when he wrote the book, this part was likely very autobiographical. However, by pointing this criticism at himself, Hesse also pointed it at every reader. Many people seem predisposed to the familiar and unchallenging, even if it stunts their emotional evolution.

Steppenwolf – Today

Do the themes in Steppenwolf still resonate and enlighten a century after its publication? Absolutely. The steppenwolf metaphor itself likely describes the feeling of every worker who has lost their job to massive, sudden swings in manufacturing, retailing, transportation or entertainment that has left entire generations of workers suddenly unemployed with no suitable skills for remaining employment sectors. It also likely describes the feelings of people who have experienced tectonic political shifts that seemingly leave them with no form of representation aggressively protecting their concerns or even accurately stating what they are.

The overall historical reception for Steppenwolf seems to indicate Hesse didn't quite nail his goal of promoting an understanding of the need to adapt through re-invention when the world becomes too incoherent. It isn't just an OPTION to try, it may very well be a NECESSITY. That message is certainly in Hesse's narrative but it was likely swamped by the edgier fantastical / psychedelic imagery that dominates the latter part of the book. However, there ARE other themes in the book that inform the experiences of the present.

The narrative involving Harry and Hermine, from their first meeting to the final scene in which Harry emerges from a drug-fueled hallucination after finding his tripped-out self was deluded into "killing" her should also trigger pause with current society. At a lower level of metaphor, the relationship between Harry and Hermine was really describing the transactional nature of prostitution. He gives X, she gives Y, he deludes himself into thinking he's still got it, she secures four weeks of steady revenue from another mark. (To further emphasize the point, in the book, Hermine never actually slept with Harry. He had sex with another woman Hermine supplied, making it clear SHE was a pimp as well.)

At another layer of metaphor, this paid, self-reinforcing delusional relationship brought about via prostitution is identical to that between individuals and modern mass media and social media platforms. There are differences in the structure of the financial transaction to be sure, but the psychology is nearly IDENTICAL. Giant corporations have devised applications that allow them to sidle up to individuals and offer them some fun or entertainment tailored exactly to their liking. Users can use the platforms to find content on virtually ANY topic ever known to man (as long as it's in English and online…). The corporations providing these systems offer them for "free." They use prior search criteria and "likes" to suggest even more content similar to your most recent intake. You're never truly "alone" on the Internet. You're never truly "wrong" about anything on the internet. It is ALWAYS possible to find some "content" somewhere created by someone who agrees with your point of view. Even if you think Adam and Eve rode dinosaurs to escape to the Ark before the flood, you are virtually assured of finding content specifically manufactured to "agree" with you and reinforce your beliefs no matter how ignorant or harmful they are to your or others. Why? Because there is money to be made. Unlike prostitution, it isn't clear who the "customer" is PAYING because the companies running these systems have purposely hidden the fees they are collecting throughout the entire economic system. The "customer" doesn't see the costs but they're there. In the form of rigged shopping experiences with discounts from inflated prices, reduced choice through the elimination of competition, the elimination of local competition via nationwide warehouse and delivery networks, curated news feeds that never break the user out of their self-selected bubble of truth, etc.

Ultimately, Hesse's narrative in which Harry becomes so drug-addled during his ongoing relationship with Hermine that an extended drug trip leads him in his addled state to "kill" the one thing he professes to truly love the most is certainly a downer, right? That's some serious, dark derangement there, right? Is it an exaggeration of the effects of self-delusion? Well, look at the 2024 electorate. How deluded were the voters supporting Trump because they only expected him to deport "bad" undocumented people but not those needed to pick our crops, mow our yards, lay down new roofs on our homes, etc.? How deluded were the thousands of farmers who voted for Trump to protect American farms now that tariffs have shifted commodities contracts between other countries and out of American markets for potentially years? How deluded were the tens of millions of voters who supported Trump for bringing manufacturing back to America, for taming inflation and eliminating wasteful government after tariffs have triggered job losses, triggered RISING inflation and jeopardized state-level funding for healthcare now that some of these very voters may find themselves unemployed? The corporate machinery controlling communication in America has perfected the art of marketing false narratives that convince vast numbers of voters to vote in direct opposition to their own best economic and social interests.

Steppenwolf – Obligatory Musical References

Of course, it should be impossible to discuss these themes of isolation and reinvention without providing a tip of the hat to the rock band Steppenwolf and their material that brought these themes to the masses beginning in 1969. In reality, the band members did not come up with the name Steppenwolf for the band. Their manager came up with the name after hearing some of their initial material, suggested it and the band liked it. However, the band's music, particularly John Kay's lyrics were definitely light years beyond the typical boy-meets-girl themes of pop music. Numerous interviews of John Kay describing his early life and escape from East Germany with his mother can be viewed on YouTube. These interviews make it clear Steppenwolf was never intended to be a banal top forty group. Two songs in particular stand out in light of the themes analyzed here. A sampling of the lyrics with the greatest affinity to the book are provided.

It's Never Too Late

Tell me who's to say after all is done
And you're finally gone, you won't be back again
You can find a way to change today
You don't have to wait 'til then

It's never too late to start all over again
To love the people you caused the pain
And help them learn your name
Oh, no, not too late
It's never too late to start all over again

And perhaps the best song Steppenwolf recorded and the song most perfectly in tune with America in the present, Monster. The lyrics below are essentially the shorter Greatest Hits cut versus the album track.

Monster

Once the religious, the hunted and weary
Chasing the promise of freedom and hope
Came to this country to build a new vision
Far from the reaches of Kingdom and pope

While we bullied, stole and bought a homeland
We began the slaughter of the red man

But still from near and far to seek America
They came by thousands, to court the wild
But she just patiently smiled and bore a child
To be their spirit and guiding light

The Blue and Grey they stomped it
They kicked it just like a dog
And when the war was over
They stuffed it just like a hog

And though the past has its share of injustice
Kind was the spirit in many a way
But its protectors and friends have been sleeping
Now it's a monster and will not obey

The cities have turned into jungles
And corruption is stranglin' the land
The police force is watching the people
And the people just can't understand
We don't know how to mind our own business
'Cause the whole world's got to be just like us
Now we are fighting a war over there
No matter who's the winner we can't pay the cost

'Cause there's a monster on the loose
It's got our heads into the noose
And it just sits there watchin'

America, where are you now
Don't you care about your sons and daughters
Don't you know we need you now
We can't fight alone against the monster

I cannot think of a better way to condense four hundred and eighteen years of American history into three minutes and fifty nine seconds than that. It's all there. America wasn't technically founded by people seeking religious freedom. The first settlement in Jamestown in 1607 was purely a mercenary venture aimed at establishing a base from which commodities in the New World could be shipped back to England. The second settlement in Plymouth in 1620 was founded by a group of Protestants who had already fled England after being persecuted for their religious beliefs who secured a deal with an English company that had rights for development in that sector of the coast in the New World. They didn't come to America seeking "religious freedom", they came here seeking the ability to practice THEIR peculiarly restrictive form of religion. America's past certainly had its share of injustices but the country was usually able to leverage the virtually unlimited resources of an entire (stolen) continent not yet exploited by industrialization to maintain an illusion of benevolent growth. But the public has become intellectually lazy and unwilling to comprehend how the forces in a modern industrialized society interact. This has allowed the powerful to tilt the playing field in their favor and use the power of the state to maintain that imbalance in their favor. The people have lost control of the society formed over hundreds of years.

Monster, indeed. Hesse saw it coming very clearly in 1920s Germany in setting the atmosphere of the book. The band Steppenwolf saw it taking place in America in 1969. And the monster is again in near complete control of America in 2025.

WTH

The Peculiar Republican Concept of Power

Events of the Trump Regime in the week ending August 22, 2025 merit special focus for making something clear that has been a very clear trend for decades. The reaffirmation of this trend should serve as a wake-up call not to Republican politicians – frankly, their corruption, fealty and silence have proven them beyond redemption – but as a wake-up call to people who have voted for Republican politicians and may still think of themselves as "Republican." The pattern reflected in the news is that Republicans believe in and follow a very peculiar and dangerous concept of power and justice. And that peculiarity does NOT stem from the corruption of a single person. It has been evident over the last half decade or more of history, back to 1968 in fact.

As a Republican candidate for President in 1968, Richard Nixon had a Republican fundraiser speak directly with the South Vietnamese government and tell them they would receive a better deal for ending the war from a Nixon Administration so they would not complete a deal in 1968 that might help lame duck President Lyndon Johnson and Democratic candidate Hubert Humphrey running against Nixon. The South Vietnamese President announced a decision to avoid any peace talks on November 2, 1968, just three days prior to the election which Humphrey then lost to Nixon by less than one percent of the vote.

In 1980, John Connolly, a former Democratic Governor of Texas and then-Republican operative working on behalf of the Reagan campaign, visited multiple countries in the middle east to provide a message to be communicated to the Iranian government – keep the hostages until after the election and you'll get a better deal from a Reagan Administration than a re-elected Carter Administration. (Sounds eerily similar to Nixon in 1968, doesn't it? No surprise, Nixon strategists continued to hold sway within the Republican Party through at least 1992.). The Iranians did hold the hostages, until Inauguration Day 1981.

On March 13, 2002, only six months after the September 11, 2001 attacks, Republican President George W Bush stated "I truly am not that concerned about him" when asked about the continued failure of the US to capture Osama bin Laden and bring him to justice. In reality, US forces and intelligence had allowed bin Laden to escape a position in caves at Tora Bora in December 2001 and since then had zero idea of his whereabouts. Yet they were confident in stating he was no longer in a position to harm Americans. At that point, preserving face for a bumbling Administration became more important than continuing to actively pursue a man who triggered the loss of 3000 lives even if it meant experiencing frustration from the American public. (In contrast, the Obama Administration related a story from 2007 of a courier making frequent visits to Pakistan to a name via a wire tap in 2010, then traced that person's travel to a city in Pakistan and by September 2010 identified the building ("compound") being visited as oddly upscale and different from its surroundings and confirmed it as bin Laden's likely hideout. On May 2, 2011, a raid was approved on that facility resulting in the death of bin Laden, two years and three months into Obama's term, securing justice not only for September 11 families but the world.)

While abandoning attempts at bringing Osama bin Laden to justice or a deadly, well-deserved end, the George W Bush Administration was instead rapidly assembling (forging, really...) a story to justify launching a war to topple Saddam Hussein from power in Iraq. The reasons were wrapped in post-September 11 rhetoric about global terrorist networks and weapons of mass destruction but the mindset was already at work in the Bush Administration prior to September 11, 2001 and Bush was quoted himself on his motives during the 2000 campaign where he was quoted saying "There's no doubt his hatred is directed mainly at us. There's no doubt he can't stand us. After all, this is a guy that tried to kill my dad at one time." Dubya exacted his revenge and probably thinks "justice prevailed" for his dad but America opened a second, disastrous, $3 trillion dollar war in Iraq which virtually destroyed any chance of success in the $2.3 trillion dollar war in Afghanistan, which, while equally dubious from a practical military perspective, at least bore the seed of some moral legitimacy in toppling a government that had provided years of shelter to the actors who launched the September 11 attacks.

On June 30 of 2008, Jeffrey Epstein was facing a 53-page federal indictment on sex trafficking charges involving dozens of women and some minor-aged women yet was given a plea deal barring all federal prosecution against Epstein, any named co-conspirators in the indictment, and (more amazingly) all non-named co-conspirators referenced in the federal indictment IN EXCHANGE for pleading guilty to lesser state charges on solicitation which did not mention the involvement of minors. United States Attorney Alexander Acosta, a Republican, and State Attorney Barry Krischer, a Democrat, were both involved in the deal and the later finger-pointing that erupted when the case was re-investigated in 2018 by The Miami Herald.. In short, STATE prosecutors were first pursuing the case but Krischer's office treated the victims as willing prostitutes (including the minors) and crippled his case via his questioning of witnesses in grand jury proceedings. At that point, federal prosecutors and US Attorney Acosta became involved and crafted their own 53-page indictment on federal charges. That 53-page indictment at the federal level resulted in lawyers and prosecutors creating the outrageous plea deal which was hidden from victims until the plea for state charges was accepted in state court. After the 2018 investigation in The Miami Herald, courts ruled prosecutors had violated federal laws regarding victims' rights in cutting the original deal.

On January 6, 2021, President Trump, a Republican, organized a rally of followers near the White House, spoke to that armed crowd of thousands and directed them to march on the Capital and "stop the steal.". Those thousands attacked hundreds of police (Capital Police and Washington DC Police) and the US Capital itself as part of a coup whose planning began prior to his election loss in November 2020. Over two months of premeditation regarding a criminal attempt to REJECT the decision of millions of American voters.

On January 20, 2025, on the inauguration of his second term, President Trump signed a blanket pardon and commutation of convictions and sentencing for fourteen named individuals and to "all other individuals convicted of offenses related to events that occurred at or near the United States Capital on January 6, 2021." The "proclamation" further directed the Department of Justice to immediately cease all investigations and prosecutions of other parties for activities related to January 6. Absolutely zero consideration of circumstances and facts for specific cases.

On July 24, 2025, current Deputy Attorney General of the United States, Todd Blanche, a Republican and former criminal defense attorney for Donald Trump, was dispatched to interview Jeffrey Epstein's convicted co-conspirator Ghislaine Maxell at her current prison in Tallahassee, Florida and obtain "answers" to "questions" about the Epstein case. No competent, ethical prosecutor or lawyer could identify any value that could come out of such an interview with such blatant conflicts of interest among all parties involved and the transcripts confirmed those concerns. Maxwell provided nothing of value to anyone with an adversarial position to her situation and transcripts were released in which she said she "never witnessed the President in any inappropriate setting in any way." But something DID come out of those interviews. Within a week of completing the bizarre interview, Maxwell was moved from the LOW-security prison in Florida to a MINIMUM-security federal prison "camp" in Texas, again abusing any norms about "justice" regarding sentencing and punishment of sex offenders. Federal prison guidelines bar any convict serving time for sex offenses from serving time in minimum security prisons, much less "camps" with no formal security presence guarding the perimeter fence or preventing people from entering. Given that ONE villain in this play was already nixed while under supposed maximum security watch awaiting prosecution, it seems odd that a party already CONVICTED would be placed in such an insecure location. Even if Maxwell has no intent to escape or harm anyone else within the facility, the greater public has an interest in ensuring she is protected and serves every day of her sentence rather than getting attacked and potentially killed and thus creating another rabbit hole for conspiracy theorists to dig for the next thirty years.

On August 22, 2025, a search warrant was executed on the home of John Bolton, noted policy curmudgeon and onetime national security advisor in the first Trump Regime. Bolton was one of the leading advocates for one key policy in the first Trump term – the goal of terminating the nuclear monitoring pact with Iran – but seemed to have many differences with the rest of the Trump Regime Take I on many other policies leading Bolton to quit or be fired (depends on who you ask) after serving seventeen months. Since leaving, Bolton has frequently appeared on television shows criticizing Trump policies in both terms. When asked to comment about the search, Trump said this:

I know nothing about it. I just saw it this morning. I tell Pam and I tell the group, I don't want to know about it. You have to do what you have to do. He is not a smart guy. But he could be a very unpatriotic guy. We're going to find out. I'm not a fan of John Bolton. He's really sort of lowlife. I could know about it. I could be the one starting it. I'm actually the chief law enforcement officer.

Does anything about that appear remotely Presidential? Or circumspect? Or reserved? Until this President, there were virtually ZERO incidents of ANY American President explicitly commenting on a tactical event related to a federal investigation of ANYONE prior to charges being filed after weeks or months of investigations withiin the DOJ which themselves took place without any comment from even the Attorney General, much less the President. In the Trump Regime, this conduct occurs DAILY and even involves different department heads retweeting each other's tweets as they all virtually chest-bump each other for going so far over the line in being hard-asses like the boss wanted.

The comments above are even more disturbing because they reflect a psychological "tell" that has been one hundred percent consistent across Trump's entire public life, even predating politics. The tell? Trump is INCAPABLE of verbally making a statement which in any way limits or cedes any sort of power or influence he thinks he possesses over someone or that another person is ascribing to him. Because his intellect is so stunted, there is no counterbalancing psychological force at work to combat his ego and this narcissistic impulse to claim a perceived power, even if a normal human would find multiple reasons to DENY or CEDE the power, even if only for appearances.

Go back to Trump's comment. Trump first DENIES that he DOES know ANYTHING about the search warrant, its motivation or its timing. A normal person, even a normal crook, would have no problem leaving the statement at that. Trump cannot leave it there. Leaving it there would leave the impression that he recognizes a President should NOT be intervening in the specific tactics and timing of work in a particular case.

Trump CANNOT accept thinking that anyone else thinks that he accepts that restriction on his power. Read what he said (my italics added for emphasis). I could know about it. I could be the one starting it. I'm actually the chief law enforcement officer.

Because Trump has yet to be held to account for any transgressions in his ENTIRE life, his psychology is such that making these "I could" comments is also very likely a tell that he actually HAS engaged in the actions he is denying while not forswearing. There is nothing in his history to have created a fear of actually telling the truth about some prior offense. There have never been consequences and essentially confessing to some prior offense is another form of power flex proving that he can get away with anything. His Access Hollywood recording on the bus didn't explicitly address one case where he DID assault a woman, but remember what he said then... "When you're famous, you can just grab 'em..." We know now that he was adjudicated of doing EXACTLY that at least once in the case of E. Jean Carroll and accused by at least 27 other women. In a court of law, this pattern of communication is not sufficient to convict. But in the court of public opinion and the more important circumstance of individual Americans needing to comprehend if their President is working FOR them or AGAINST them, it's perfectly valid to incorporate logic into any decision about allowing someone with this mindset to retain power.

However, Trump is not a unique Republican in this approach to power. Trump is only unique in the toddler levels of impulsiveness driving his mindless assertions of these limitless powers he believes he has. But over the past decade and certainly in the first seven months of the second Trump Regime, it is clear many other Republicans in federal and state elected and appointed positions have a similar inability to understand or respect limits on what they perceive are their powers within our judicial system. They don't even respect the limits of power when they're not holding power and merely trying to obtain it. There are dozens (hundreds?) of officials scattered across federal and state government who believe anything they do using their powers of office is justified as long as their actions help Republicans retain power. When that contingent has a President at the top of the org chart with even less impulse control over abuse of power, the country will see the rule of law collapse. It is already happening.

A country of 350 million inhabitants cannot operate with a single President willing to intervene in EVERY federal case (and state cases will be next – would-be Constitutional separations of power mean nothing when no one is following the Constitution) and pick and choose winners based on who most recently offended him or kissed his ass. A country of 350 million cannot operate an economy in which a single President is arbitrarily setting trade policies with billion dollar impacts to thousands of businesses and even demanding ownership control of companies in exchange for letting them merely try to continue operating without interference.

WTH

Running On Empty -- Redux Times Five

The internal mechanics of the financial system have been the subject of extended essays in this forum over the last eighteen years. The first installment addressed an oddity, a quirk, a geeky curiosity among bankers, really that occurred between August 2 and August 9 of 2007.

Financial Markets Running on Empty

At that time, the Fed had used its lender of last resort mechanism to inject over $38 billion dollars of cash over multiple days as inter-bank lending ground to a halt with absolutely nothing going on in the markets. Yet, the amounts of cash being injected by the Federal Reserve for a non-event actually exceeded the amounts required to stabilize markets after the September 11, 2001 attacks closed markets for three market days and were going to re-open with six days of cumulative uncertainty.

It turned out there WAS something going on in the markets as savvy institutions began sniffing out other overextended institutions and began understanding the implications of the derivatives market. The ripple from that first August 2007 pebble of worry rippled around the world economy, amplifying until a wave hit Bear Sterns which triggered a massive bailout which triggered more worry until an even larger wave capsized Lehman Brothers in September 2008 and kicked off the much larger global crisis.

The next story in this series arrived In March of 2023, driven by four different bank failures and a new round of overnight lending that even exceeded 2008 financial crisis levels in inflation-adjusted terms.

Do You Smell Smoke?

Silicon Valley Bank failed due to its lack of diversification in assets, high share of accounts with balances far above FDIC insurance limits (hundreds of accounts holding MILLIONS of dollars above the $250,000 FDIC insurance limit) and a large number of business customers using it for payroll who suddenly had to pay billions in severance as their businesses slowed or failed. The firm could not support the cash drain imposed and required rescue. At the same time, two other banks Silvergate and Signature Bank failed in large part due to exposure in crypto markets then a third large regional bank named First Republic with the exact same symptom as Silicon Valley Bank – over 68% of accounts had balances exceeding the FDIC insurance limit. Markets pounced, First Republic stock tanked and an emergency $38 billion merger deal was hastily concocted and approved.

But at the same time of those four bank failures, the statistics behind daily operations at the Federal Reserve again showed a much larger looming danger. Again, the dollar value of overnight lending between March 10 and March 17 of 2023 SKYROCKETED to levels not even seen during the 2008 global financial crisis. Overnight lending from the Fed to member banks reached a total balance of $152 billion.

The liquidity theme again arose in April of 2025 as the Trump Regime vacillated on nearly an hourly basis over multiple days about the timing and level of threatened tariffs on billions of dollars in imported goods.

The Crash That Wasn't… Yet

As markets reacted in elation then fear then elation ad nauseam, every swing in the markets created the risk of surprises in bets on interest rates. As Trump mouthed off at a fundraising dinner on April 7, 2025 about how foreign countries were lining up to kiss his ass, world traders began liquidating vast quantities of short term Treasuries. Treasury and Fed officials spotted this pattern that evening of April 7 prior to Wednesday morning market open and had convinced the Trump Regime to defer implementation dates on ALL tariffs to avoid triggering a lockup that would have rippled through derivatives markets and likely triggered a stock and bond collapse worldwide.

Finally, news from the week of August 10, 2025 served to further highlight the disdain with which banks and investors were beginning to view Treasury securities in particular and the Treasury's overall strategy in general.

Foreshadowing in the Bond Market

The Treasury issued $95 billion in 4-week bonds on July 31 and another $100 billion in 4-week bonds on August 7. Statistics on those sales reflected a sharp contraction in the number of bidders participating in those auctions (signaling drastically reduced desire in participating in the auction) and the final price set for the debt at auction reflecting a growing gap between the Treasury's perception of appropriate rates and that of the larger market – with the market expecting HIGHER rates, not LOWER rates.

So why is this topic coming up again, only four days later? Because more ominous statistics are being seen regarding daily operations of the Federal Reserve and the larger market, all of which again point to a sharpening contraction in liquidity.

The Takeaway

If nothing else in this analysis clicks with readers, this general thesis first summarized this way in the Crash That Wasn't...Yet piece is the most crucial lesson to learn and apply to future events.

Bad things in the economy don’t happen when investors lose money. Investors lose money every day. Bad things -- REALLY bad things -- happen when money stops flowing.

Money stops flowing when parties to a proposed transaction feel unable to determine the level of risk they are taking in entering a deal with each other. That risk stems from multiple factors:

• the ability of the party paying money to deliver the promised amount
• the ability of the party receiving money to deliver the promised good or service being purchased
• concerns of either party of the actual stability of the currency used as the medium of exchange
• concerns of either party regarding larger systemic risks in the economy that might make the transaction impossible to complete or entirely moot

If nothing else in markets is making sense, any collection of signs that reflect a contraction in the liquidity of the markets is the biggest danger sign to watch. A faulty engine can still move an economy in a good or bad direction but keeping the engine turning is critical to correcting any other input. An engine that has seized cannot take the economy ANYWHERE. The key is to watch for news related to internal market liquidity, not the frothy stuff about which stocks are up or down or what interest rates are.

So what's the danger sign emerging the week of August 10?

Running On Empty – Redux Times Five

On August 14, 2025, previous concerns about market liquidity as reflected in participation and pricing in Treasury auctions over the prior two weeks was reinforced by new statistics on the dollar value of reverse repurchase contracts between the Federal Reserve and member banks. As a brief explainer (or reminder), the Federal Reserve uses two mechanisms to influence the amount of cash within the larger economy. At the same time these tools manipulate cash within the banking system, they also allow the Fed to try to influence interest rates.

A repurchase agreement involves the Federal Reserve buying securities from banks and giving cash to the bankin return. This pushes cash INTO the banks and the larger economy, often when the banks need it for short term crunches. At the same time, in order to convince the Federal Reserve to surrender the cash, the borrowing bank is agreeing to a higher interest rate premium to reflect the degree they NEED the cash. As a result, repurchase agreements tend to drive interest rates UP.

A reverse repurchase agreement sells securities off the Federal Reserve's balance sheet to banks and takes in cash while promising to buy that same security a few days in the future at a higher price. In the short term, this pulls cash OUT of banks and the larger economy. Because the Fed is agreeing to buy that security at a higher price, this acts to reduce interest rates.

In normal market scenarios, regardless of the actual level of inflation, interest rates, stock prices, the phase of the moon, etc. when all market forces are in general agreement about the absolute level of risk in the market, these re-purchase and reverse re-purchases agreements take place every day with magnitudes in the tens of billions of dollars range. That's normal. Within these norms, the overall system provides enough wiggle room for the Federal Reserve to use these "knobs" every day and apply the SLIGHTEST of nudges to interest rates to keep things approximately where the Federal Reserve thinks they should be. But this mechanism only works when it's invisible and NORMAL daily operations are driving these incremental repo and reverse repo volumes. When risk perceptions in the larger market change overnight and demand for the types of securities used to fuel these repo and reverse repo transactions spikes UP or DOWN, the mechanism cannot be relied upon. The magic doesn't work if everyone sees the magician trying to turn the levers where they weren't designed to go.

In the week of August 10, 2025, the volume of reverse repurchase agreements dropped precipitously. Going back to first principles, the Federal Reserve would be trying to USE reverse repurchase agreements to drive UP Treasury prices which drive DOWN short term interest rates. Keep in mind that's what the Trump Regime and its Treasury are betting on. They're betting $100 billion dollars a week on this eventuality.

But for the Fed to begin triggering higher volumes of reverse repurchases, there have to be banks willing to HOLD existing short term Treasuries and those banks have to believe that short term interest rates CAN come down and drive those Treasury prices UP. The Treasury auction results from the week of August 3, 2025 point out that fewer banks are buying up short term Treasuries so assumption #1 involving existing holdings is weaker than it was months ago.

Those same banks have less confidence that interest rates CAN go down because the Producer Price Index (PPI) inflation report was released August 14 that showed inflation within the producer sphere of the economy jumped 0.9 percent in July of 2025. Going back for the past twelve months from August 2024 through July 2025, that PPI index has accumulated to an increase of 3.3%. But that's looking backward over twelve months where higher tariffs were not part of expectations except for the most recent five months. That July 2025 monthly rate of 0.9 percent inflation would equate to 11.23 percent if it held steady for the next twelve months. That's DEFINITELY not compatible with the Federal Reserve LOWERING interest rates to appease the Trump Regime.

Finally, banks and the larger markets are also becoming concerned because at the same time the Treasury has been stating its intention to shift more of the government's existing debt into shorter term securities – expecting lower short term interest rates to lower borrowing costs – the Treasury has also stated it wants to increase the level of cash in what is termed the Treasury General Account (TGA). This essentially acts as the Treasury's checking account. The need for more cash in this account makes sense. If your personal finances rely on you rolling over payday lending loans, car loans, home equity loans and re-financing your 30-year ARM mortgage on your home every three days, you need a lot more cash on hand to accommodate these different sized loans coming up and needing to be paid off in cash while getting new cash from new loans.

The problem is that raising cash in the TGA account requires selling even MORE short term debt, beyond the "structural" short term debt being re-re-re-re-financed. The market is not liking this additional demand for borrowing and the Treasury is trying to raise the TGA balance from the current $504 billion up to at least $700 billion. To better grasp the implication, imagine you are a current Treasury bill owner and you see your borrower, the Treasury, is borrowing even MORE money from MORE people to raise MORE cash so they can roll over even MORE of your current loans every week for the next ten years. That does not likely raise your confidence in the long term financial strength of your borrower. Do you keep lending? Or do you look for other places to lend money and earn a safer return?

---

Again, the net-net of all of this?

Even if the Federal Reserve WANTS to lower interest rates either because it agrees with the Trump Regime or simply wants to placate it, the Federal Reserve cannot literally dictate interest rate levels that no one else in the financial system buys. (Literally). The Federal Reserve's power to set interest rates is completely restricted by the willingness of banks to come running with cash when the Fed wants to sell Treasuries. If demand for Treasuries shrinks even five or ten percent, none of the levers on the Federal Reserve's machine work. The real concern is that they not only fail to work as intended for the Fed's tactical interest, they will fail to work under more dire emergency scenarios, like another financial crisis, a natural disaster, terrorist attack destroying hundreds of billions of infrastructure or another unfunded trillion dollar war.

It's a good thing these are all hypotheticals.

WTH

Foreshadowing in the Bond Market

The behavior of bonds as financial instruments and the mechanics of bond markets are among the most complex areas of finance and economics to understand or theorize about and explain to others. Bonds themselves are simple on the surface yet abstract many complex financial, economic and political fears and involve exponential mathematics to derive their value. This complexity makes stories about bond markets ratings poison to media and leaves most of the public completely clueless about how bond markets affect the larger economy and their individual finances. Most of the public that even follows stocks is clueless to the fact that the most commonly quoted factoids about the stock market's performance are grossly distorted. In the S&P500 index, forty percent of the index's total value is concentrated in TEN of the FIVE HUNDRED stocks in the index and most of them are tightly associated with AI technology which is in a bubble.

Current economic conditions make this inscrutability of bond markets to average citizens a significant danger. Bond markets not only reflect a larger share of total wealth than stocks ($55 trillion for bonds versus $49 for stocks) but the direct, exponential relationship between the value of bonds and inflation (feared and actual) means that bond markets act as a magnifier of the tiniest changes in direction in the economy, both domestically and worldwide. A review of events in a single week, the week of August 4, 2025, makes warning signs in the larger economy very clear and makes it very evident those dangers will trigger rising interest rates, credit contractions and a major threat to economic stability in the near term – months.

To step through this analysis, a short summary of the key events will be provided first, followed by some background on the mechanics of Treasury auctions for US debt then a broader review of dependencies that are lining up.

First, The News

Treasury Auctions -- The Treasury conducted normal sales of debt via routine on-line auctions the week of August 4, 2025 but market followers noted the results of several of the larger auctions were noticeably non-routine. Specifically, an auction on 8/6 selling $42 billion of 10-year notes and an auction on 8/7 selling $25 billion of 30-year bonds resulted in indicators of market interest and inflation expectations that suggested a much wider discrepancy than the Treasury expected. This was in spite of other economic news that normally would make the relative security of Treasury securities more attractive as an alternative for investors. This was likely due to the fact that August 7, 2025 also included an auction of a record $100 billion in 4-week bills following a $95 billion dollar auction of 4-week bills just the week prior.

Declining Home Sales -- A variety of banks and trade associations tied to housing have all issued public statements forecasting unit home sale volumes dropping to 30 year lows due to high mortgage rates while others publicly state home sales may drop even with zero mortgage interest rates because buyers simply cannot afford existing or new homes. In the same period, stories also came out indicating that prices of condominiums are declining in virtually all cities that experienced a price bubble over the past five years. Price declines are frequently hitting ten to twenty percent from peak prices a year ago.

Auto Market Statistics -- Statistics for new and used care sales are reflecting major affordability problems for consumers. Average statistics for price ($47,000), monthly payment ($745) and term (68.6 months) are concerning enough. Within those averages, many purchases are hitting the $70,000 and up range which is triggering even longer loans – 19.8% of new loans opted for terms 84 months or longer. Used car sales involve a much smaller share of purchases requiring loans (only 36.5% versus 80% of new car buyers) but those that did finance also opted for longer loan terms, averaging about the same as new cars at 67 months. Perhaps the ost ominous number is the share of car loans delinquent by 90 days or more. That number averages about 3.5% but is now around 4.99%. In general, lenders find that auto loans are the LAST bill that customers stop paying because a repossession of a car happens nearly immediately and no car means no ride to work which means no paycheck which jeopardizes everything.

For individuals following these stories about home sales and car sales amid a job market seemingly frozen amid layoffs by some of the most profitable firms on the planet, these should certainly trigger concern about events over the next few quarters. However, with a bit of insight into the mechanics of Treasury auctions and bond market psychology in general, the underlying reality seems even more concerning.

How the Treasury Auctions Debt

Most states have Constitutional language banning them from borrowing money for operations and requiring them to run with a balanced budget each year. The federal government obviously has no such restriction and has been required to raise copious amounts of cash on a nearly daily basis for routine operations. These sales of debt are over-simplified when covered in the media and likely leave most people with the impression that the Treasury puts new debt on a plate, puts the plate on a picnic table outside the Treasury, rings a bell and the world comes and buys up whatever the Treasury decided to sell at whatever price the Treasury chose to set. Given the attention paid to budget approvals and debt ceilings, Americans could be forgiven for also assuming the Treasury calculates each new year's deficit, then goes out and essentially takes out a single new loan for that new deficit and adds it to the stack of IOUs currently totaling $37.212 trillion dollars.

None of these assumptions are remotely true.

First, the Treasury sells new debt nearly every work day of every week throughout the year. A fiscal budget reflecting a $1 trillion dollar deficit doesn't mean that all $1 trillion of that deficit is needed immediately in cash, only over the course of the entire fiscal year. The Treasury divides up that new DEFICIT amount then factors in expected cash needs for upcoming bills, notes, bonds and coupon payments coming due and establishes its own internal schedule on when it wants to raise new cash via sales. Like individuals take out different loans over different terms for different purposes (car loans, home improvement loans, college loans, home mortgage loans), the Treasury sells bonds over a wide variety of time maturities such as 4, 6, 8, 13, 17, 26 (bills) and 52 weeks, 2, 3, 5, 7 and 10 years (notes) and 20 and 30 years (bonds). (Note: for clarity henceforth, all of these will be referred to as "bonds."). This gives the Treasury the flexibility to adjust future cash demands by altering maturity terms, choosing how much debt to pay off versus roll over and allows the Treasury to take advantage of fluctuating interest rates when they change to the Treasury's advantage.

For each individual sale of debt, the Treasury does not dictate the price of the bonds. Instead, it uses a process called a Dutch auction to sell new debt to the public. In a Dutch auction, the seller pits all potential buyers against each other by providing notice of the sale date, the total aggregate value of the sale and the number of bonds being sold. Bonds typically have $1000 face value denominations so a sale of $10 billion of debt would involve 10 million bonds. So that means the bond price is $1000 right? Wrong.

Because bonds are a debt instrument involving a promise to pay the face (par) value back on some future fixed date, the "price" of the bond is discussed with two related metrics – either its current price (which reflects the net present value of its interim coupon payments and the final payoff from the Treasury at maturity) or its yield (the effective interest rate used in the NPV calculation that results in the bond's current price).

When the Treasury opens the auction, anyone (literally anyone – primary dealers, large banks, investment firms and individual investors) can view the offering and submit a bit for a portion of the offering. In theory, each bidder evaluates the size and maturity term of the offering, examines interest rates in the rest of the market from other borrowers, looks at the coupon rate offered by the Treasury's new offer, then calculates a price they believe adequately compensates them for the risk they are taking by lending the government that much money at that rate over that term. They then submit their bid for X units at P price. The bidding is typically open online for one hour then the Treasury closes the bidding then sorts all of the bids from highest price to lowest price, accumulating the total number of bonds reflected in each bid. When a bid is reached whose X unit count adds up to reach the total quantity of bonds in the offer, the price of THAT bid becomes EVERY bidder's price and the Treasury then finalizes the sale. If that last bid was for $851.23 on a $10 billion auction of $1000 bonds with 4% coupon payments every six months, the Treasury nets $8.512 billion dollars from the sale while adding $10 billion to the nominal debt. That price of $851.23 reflects a rough consensus that buyers expect a real yield of 6% on that 10-year bond over its life.

With that background into the auction process, statistics resulting from that process and the psychology market watchers derive from those statistics can be explained.

Mapping Auction Statistics to Psychology

First, as stated earlier, the Treasury conducts auctions of new debt nearly every work day of every week and the amounts and terms of these bonds being issued vary widely based upon economic conditions. These statistics have been collected for DECADES and thus have been found to fall within certain bounds under all but the most unpredictable circumstances such as the September 11, 2001 attacks or specific days within the 2008 financial crisis. In short, professionals have a clear idea of what "normal" is for these auctions.

Second, it is truly the buyers and not the Treasury that set the price of each auction that dictates how much actual cash the Treasury will collect when closing the sale. The Treasury chooses the nominal dollar value of the entire issue and chooses the coupon rate paid on longer term notes and bonds but the BUYERS ultimately do their own calculations based on their own assumptions about inflation and the risk of default by the Treasury versus other alternative investments and use that to set their bid price. This has two key implications.

• If the Treasury's coupon rate is materially lower than expected inflation, bid prices will likely be significantly lower than face value, drastically reducing the net cash raised by the sale. This acts as a sign that the market does not agree with the Treasury's expectations or wishful thinking about inflation and interest rates and demands a higher premium. Since the Treasury dictates the coupon rate, the only way bidders have to collect a higher yield is to lower the price being bid for the bond.
• If bidders bid prices significantly higher than the par value, that historically has been a sign of relative fear in markets, either a presumption that Treasury debt is more secure than corporate debt or leaving cash invested in stocks.

Third, buyers can not only signal disinterest in a particular issue by low-bidding on the offer, they can also just NOT BID. When the volume of bidders (or the net value of their bids as a fraction of the total sale) drops precipitously, inevitably lower sale prices will result. In theory it is possible for a Dutch auction to "fail", meaning the total value of all of the bids doesn't even equal the quantity of debt being sold (e.g. all bids only add up to $9.1 billion on a $10 billion auction). In reality, this doesn't happen because the larger bond market includes institutions given special privileges in exchange for acting as "primary dealers" which obligates them to act as market makers to provide liquidity for situations where demand does not equal supply. These primary dealers are required to step in and bid for any remaining bonds if bids haven't totaled up to the sale quantity.

Here are the key statistics gathered from Treasury auctions that are watched by professionals:

Bid-to-cover Ratio -- This is a ratio reflecting the extent to which bids exceeded the total sale amount offered for sale by the Treasury. Bids typically exceed the nominal sale amount by many multiples so lower numbers reflect a lack of interest in that offer which may indicate larger concerns about government policies regarding debt levels, inflation, monetary policy, etc.

Yield -- This is the effective return that will be earned by the buyer based upon the sale price, coupon rate and term. Bidders want this to be as high as possible (reflected by a lower sale price) while the Treasury wants it to be as low as possible (reflected by a higher sale price).

Allocation -- This statistic summarizes the share of the total offering bought up by different categories of buyers including primary dealers, direct bidders trading for their own benefit and indirect bidders acting as buyers for foreign entities. Ideally, demand is high enough that primary dealers never need to act in their market maker role so 100 percent of the sale maps to direct and indirect bidders. As the share of the sale purchased by primary dealers goes up, concerns rise as well about liquidity and the attractiveness of federal government debt.

Tail / Through - When a particular issue first opens for bids, the Treasury publishes prices of those bids so everyone can get an idea of the general sentiment in the market for that offer. When the bidding is closed and a final price point identified, any drop between that initial opening price and the final price is termed a tail. Similarly, if the final price is higher than the opening price, that difference is termed a Through. (NOTE: Conceptually, this perception gap could be reported as the +/- delta from the opening price versus the final resulting price OR the +/- delta in the yield of the bond. In practice, Tail / Through is reported in terms of the yield with units of basis points" with a basis point equal to 1 percent of 1 percent – EXCEEDINGLY SMALL values.) These Tail / Through statistics provide another indication of the relative strength or weakness in demand for a particular issue based on the price levels being bid during the auction. Small values are essentially immaterial random numbers but large values can be problematic. Large Tails reflect unusually weak demand which can thus reflect concerns about either the security of the issue or its yield being insufficient for current market conditions. Large Throughs can reflect unexpected interest in divesting from other corporate bonds or stocks in favor of Treasuries as a "lifeboat" for future expected financial turmoil.

Re-examining These News Stories

With this background in Treasury auction mechanics and psychology, the news regarding recent auctions can be placed in a more understandable context. Remember those highlights:

• Auction on August 6, 2025 of $42 billion of 10-year notes
• Auction on August 7, 2025 of $25 billion of 30-year bonds
• Auction on August 7, 2025 of a record $100 billion of 4-week bills

Based on the statistics of those three auctions, what did larger markets think about these auctions?

For the $42 billion dollar 10-year auction, the bid-to-cover was quite low, around 2.35 and the resulting interest rate on 10-year notes rose 2 basis points from 4.20% to 4.22%. The "tail" on the auction was 0.9 basis points. The allocation showed primary dealers purchased 16.2% of the issue, up from an average of 14.2%.

For the $25 billion dollar auction of 30-year bonds, the bid-to-cover was again low at 2.27 and the resulting yield on 30 year bonds rose to 4.813%. The "tail" was 2.1 basis points. The allocation showed primary dealers purchased 17.5% of the issue.

For the $100 billion dollar auction of 4-week bills, The tail was 0.5 basis points – notable since interest rate expectations over extremely short periods of four weeks should be far easier to predict than 10 and 30 year bonds. The allocation showed primary dealers purchased 32.1% of the offering. (The share sold to primary dealers is not consistent across maturities so this statistic can only be compared to shares in auctions of identical terms.)

For reference, here is what the official Treasury news release looks like for a completed auction, using this $100 billion auction on August 7, 2025 as an example:

https://www.treasurydirect.gov/instit/annceresult/press/preanre/2025/R_20250807_1.pdf

In general, reaction in the markets was quite pessimistic, as evidenced by the relatively high share of bonds purchased by primary dealers and given the significant mismatch between Treasury expectations of acceptable interest rates and expectations by bidders as reflected in the tail amounts. Since a basis point is essentially a percentage point of a percentage point, these "basis point" spreads seem insignificant. However, the Treasury incorporates current interest rates as reflected by prices of existing bonds of similar maturities when setting coupon rates of new issues. Therefore, when actual bids come in with LOWER prices (which reflect a demand for HIGHER interest rates and yields), tails on new bond issues act as a warning sign from markets to the Treasury that the market sees growing risk it expects the Treasury to reflect.

Bond market watchers who follow these auctions analyze these statistics and try to boil them down to a "grade" reflecting how well the Treasury's offering met expectations in the market while meeting its immediate need for cash. The grades assigned to these auctions were consistently low – D.

What is driving the disconnect between the Treasury and bond market watchers? The watchers believe the Treasury is assuming it will succeed at jawboning the Federal Reserve Bank in lowering interest rates. That is why it is rolling over so much maturing debt into such short terms. It assumes rates will be LOWER in just a few weeks allowing that debt to be rolled over AGAIN at lower rates. The Treasury may believe this but the market clearly does NOT and is concerned the government is destabilizing its cash flows by placing such huge bets on short term interest rates that can change rapidly in EITHER direction. One can extrapolate one layer deeper into fear and theorize the larger market is additionally concerned by this shift to short term debt because this shift limits the government's ability to raise ADDITIONAL emergency cash should something REALLY bad happen, like, oh… I dunno… Maybe a stock market crash, another banking meltdown or a natural disaster. These fears are completely rational. The federal government is betting everything goes right and nothing goes wrong anywhere in the economy while pissing on allies and prior trade partners and adding trillions in additional debt.

So if the take from professionals on the lending side of the credit market is tending pessimistic, how will that affect consumer borrowers and the larger economy?

First, it's notable that the expected (feared?) square wave jump in tariffs and prices didn't happen in lock step with the initial threat of new tariffs on April 1, 2025. Many of the largest tariff rate jumps were deferred for weeks then months as the Trump Regime promised looming "deals" that might be lower than the originally threatened rates. As a result, second quarter economic results did not reflect skyrocketing tariffs – only drops in tourism and the value in futures contracts for farmers. But note that despite these delays, job growth in America has already tanked in 2Q2025. Since July 1, some tariffs – notably those for Japan, Mexico and Canada – HAVE been officially set and are beginning to affect prices. Now things officially get interesting.

One way of thinking of the feedback cycle that will become magnified over the next few weeks and months is to think of this series of input changes rippling through the economy in a loop:

• reduced demand from tariffs finally kicking in in key consumer sectors
• tariff costs split between corporations (as reduced margins and profits) and consumers (higher prices)
• lower profits triggering "earnings surprises" in stocks priced for perfection, driving falling stock prices
• higher prices triggering further reductions in consumer demand
• reduced demand triggering additional job reductions, further reducing household income
• higher unemployment increasing credit defaults on cars and homes
• any negative surprises in the stock or bond market due to price / rate fluctuations raising the likelihood of derivative based faults that trigger larger and larger surprises

With that relatively generic feedback cycle in mind, some examples can be examined in more detail.

EXAMPLE: The Automotive Market

It is very odd to see stories that both Ford and General Motors recorded surprisingly high unit sales and revenue for the second-quarter period of 2025. That wouldn't seem to indicate consumers are unwilling to buy new vehicles or obtain loans for them. However, financial results for car MAKERS have to be read with a healthy dose of skepticism. The "sales" reported in quarterly earnings of the MAKERS are sales from the MAKER to its DEALERS. They are not unit sales from dealers to customers. While Ford and GM reported high sales, inventories on their dealer lots are ranging from 90-120 days. That means given their average sales volume over the prior 30 days, the number of cars remaining on their lot would last those dealers for another 90-120 days of sales, even if they don't accept a single additional car from the maker.

With tariffs now in effect, car MAKERS would like to raise prices to maintain their same margins while eating the additional cost of the tariffs. If their dealers had NO cars on the lot and consumers clamoring to buy up any new vehicle sight unseen, makers might be in a position to do that. When the dealers have nearly 4 months of unsold inventory of already high prices, they will not be able to accept even HIGHER priced vehicles and move them without drastically lowering prices on the existing unsold units. That will drive down ALL prices, including used car prices, sticking dealers with massive losses.

At a minimum, this will likely trigger the bankruptcy of hundreds of dealers across the country, spiking unemployment. If auto makers properly recognize the situation and STOP MAKING NEW VEHICLES until demand eats through inventory, this will trigger a spike in unemployment among assembly workers and any workers in US parts manufacturers used in the cars not selling or being made.

EXAMPLE: The Housing Market

The housing market reflects many unique pathologies of its own making beyond its obvious susceptibility to interest rates. Housing construction has not kept up with the growth in "households" since 2006 and prices in many markets have been driven up by investment firms buying up standalone homes and condominiums as investments. Despite public support for "affordable housing", most communities continue enforcing and enhancing zoning policies that make the most cost-effective modes of housing illegal for fear of driving down existing home values – either due to density or the characteristics of the residents who might buy the units.

As of 2025, the housing sector seems to be destined for a shock. August reports for new home starts showed a 9.6% jump to an annualized rate of 1.36 million units. Unfortunately, at the same time, housing lenders and industry trade groups issued reports forecasting home sale volumes dropping to 30-year lows due to high mortgage rates. Other stories have further elaborated that affordability is so poor and buyers so strapped for cash flow that home sale volumes may drop even if mortgage rates dropped to zero.

Lower prices could solve some of these problems but pose their own dangers to individual owners and the larger market. Trade press and local news stories are reporting "bubble" areas like Miami and Austin are seeing significant price drops of between ten and twenty percent from highs in 2022. For those existing owners, this could trigger a financial crunch if they want to change jobs and relocate or lose their current job providing the income to make the mortgage payment. For relocations, even if the employer eats the loss, that home sale will still drive down "comps" for nearby homes and apply downward pressure in the local market. Owners needing to sell after losing a job will also drive down "comps" but will also immediately realize a large cash loss they may already be unable to afford due to the lost of a job. In bubble areas, these losses might range from $50,000 to $100,000 for an "average" home. Most households do NOT have the wherewithal to eat a $50,000 loss and still come up with cash to plow into a new home. Such losses will likely result in a downshift into a lower standard of living and significantly less spending. This shrinkage in spending ripples through the larger economy as another round of contraction in demand.

The higher share of homes owned by financial investors further complicates dynamics in the housing market. If one hundred percent of homes were owned by their occupants, a downturn in market prices for one or two years might lead those occupants to stay put rather than eat a drop in equity unless they absolutely HAVE to relocate. When an investor or hedge fund owns hundreds of units of single-family homes or condominiums, many of which might be vacant, there's no stay / move decision to make, only a keep / sell decision. These institutional owners may be more eager to minimize losses by dumping properties before they become too far underwater. This can add downward momentum to prices which can trigger more institutional selling and accelerate the downward spiral.

One final timing consideration with the housing market merits consideration. The NIMBY zoning restrictions affecting construction across the country, limits on trade labor for construction, spikes in construction commodity prices during the pandemic and a boom in high tech workers relocating after being promised perpetual work from home arrangements resulted in a particularly insidious set of economic circumstances:

• Most homes constructed over the last five years have above average prices and are for larger homes
• Most of these homes were overpriced due to the premiums paid for labor and supplies as the construction business sorted out pandemic problems
• A significant share of these newer homes in "bubble" markets such as Austin were built for employees who moved from even more expensive cities in California or New York. These buyers likely had significant cash extracted from their prior expensive home to plow into a cheaper but still expensive new home.
• Given the high prices paid for many of these homes, the ownership is likely skewed towards white-collar professions – technology in particular – that are being impacted by current layoffs

In this line of thinking, it may very well be the case that those most likely to be squeezed by a contraction in housing prices are homeowners who recently relocated and are most likely to lose their job in the coming months, triggering a personal financial crisis that was unthinkable only a year ago.

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The net-net of this recent bond market news is that professionals in the bond market are clearly worried about the sanity of Treasury strategies for managing the massive debt of the United States and seem worried this swing to short term financing will leave the federal government with nothing in the tank to counteract any other economic shock that might hit. The negative feedback loops triggered by the disastrous tariff strategies imposed by the Trump Regime ARE beginning to exhibit themselves in the demand side of the economy and seem poised to ripple into the supply and employment components immediately. And the apparatchiks in charge are pursuing strategies which no one in the larger financial markets would recommend.

WTH

The Great Flattening

The combination of Artificial Intelligence tools, continued layoffs in IT fields and reduced opportunities for recently laid off workers and new college graduates has resulted in a flood of news stories and online commentary that seem to be converging on a common term for the phenomena -- The Great Flattening. In this simplified narrative, the job market is being squeezed because corporations are concluding there is a significant swath of middle management labor previously providing "analysis" and "tracking" and "forecasting" required by upper management that is no longer needed or can be done via AI based automation.

That's a concise summary. It fits into one paragraph to match the attention span of modern readers. It even gels with other popular narratives helping to hype AI. Unfortunately, this explanation is missing crucial details that provide a more complete picture on the causes of this trend which means this explanation does little to help society understand what can be done (if anything) and doesn't help individuals who might be affected or already have been affected to prepare for what comes next.

What's wrong with this simplistic "great flattening" theory? It fails to reflect a unique combination of regulatory failure in the economy (the American and worldwide economies alike) and a perpetual disconnect between the theory of business operations and the actual power politics of large corporations. Those two forces are creating a discontinuity in staffing requirements that is unique in its SIZE but not its NATURE that happens to be coinciding with the advent of new AI technologies that are benefiting from a lack of regulation while promising to enable additional labor savings in many of the most expensive labor categories within large corporations.

Business School Theory

In efficient economies, efficient companies led by professional managers continuously monitor the entire business environment and examine market demand, willingness to pay, technology that allows trade-offs between labor and automation and the status of competitors. These observations are then used to make alterations to a company's products and the processes used to make them, including choices between investments in labor and training versus technology and automation. An efficiently operated firm that knows demand for its product(s) equates to X when it only has labor to produce 75% of X can choose to a) spend more money on overtime to meet demand with existing labor supply, b) hire more workers, c) adopt new technology that increases output without requiring more labor or d) do nothing and cede market share to competitors.

In theory, a professional manager will choose (a) (overtime) if demand is only thought to be temporarily high or seasonal. In theory, a professional manager seeing a permanent increase in demand would analyze the productivity trade-off between labor and capital equipment then pick a mix that would increase capacity to the full value of X.

p>Conversely, the same firm with capacity for X units facing demand for only 75% of X also faces choices – a) keep producing X units with the current labor and build unsold inventory, b) only produce 0.75X units with the current labor force to avoid costs for extra materials and unsold inventory, c) reduce the labor force to the level required to only produce 0.75X units to save money on both labor and materials and avoid excess inventory.

In theory, a professional manager would only choose (a) (no changes) if contractually bound to continue buying supplies, etc. Option (b) would be chosen if the shortfall in demand was viewed as temporary or seasonal and the cost of idling workers or retraining replacements exceeded labor savings. Option (c) would be chosen if the business recognized the shortfall in demand as persistent or long term, in which case any other choice is just delaying an inevitable reckoning of unprofitability.

In short, in both scenarios for market growth and market shrinkage, a professional manager should be attempting to continuously monitor the need for labor and making consistent (monthly? Quarterly? Yearly?) adjustments to staffing levels to meet output demand. Visually, a company's headcount should theoretically exhibit a stairstep pattern that remains tightly correlated over time to the output of the company's processes. Something like this:

That's why MBA students take classes in managerial accounting and operations management, right? Perhaps those MBA students need a better class in Human Behavior and Organizational Design. What actually happens in many (most?) corporations is vastly different.

Corporate Reality

This process of continual optimization theorized by business school curriculums (and suggested by common sense) is distorted or short-circuited entirely in large corporations by a consistent set of human behaviors:

• Middle management is reluctant to share early indications of future bad news with senior executives. Senior execs don't want to hear bad news or excuses, only results, no matter how absurd the goals may be or bad the external environment might be.
• Senior executives are often reluctant to act upon legitimate bad news after hearing it, either for fear of consequences from a board or a belief they can achieve impossible results by sheer force of their will (see The Steve Jobs Reality Distortion Field).
• People in organizations are prone to empire building. Headcount is equated with influence and increasing headcount is frequently a requirement for promotion to higher titles and pay so virtually no manager is going to VOLUNTEER to surrender headcount (even after a voluntary exit) as "unneeded".
• Senior executives often protect their turf at the expense of other organizations. When a company reaches a point where wholesale cuts are required, many executives will argue their department is different and is tied to revenue or "customer experience" and that cuts need to come from elsewhere. Anywhere but my department. I run a tight ship, my department is perfectly sized, everyone else is bloated and inefficient.
• Seemingly continuous "re-organizations" every time an executive role changes hands which result in responsibilities shifting to new leaders who don't understand the roles operating under them. This often produces one of two opposite but equally harmful problems. It often yields a situation where the new leader doesn't recognize a newly inherited function is over-staffed for current needs and thus allows its bloat to go uncorrected. It can also yield a situation where the new leader accepts a new responsibility without some or all of its current headcount. This ensures their new team will be perpetually overworked, further heightening middle managers' reluctance to let go of headcount without a gun to their head.

All of these human behavior traits lead to a consistent, inevitable result. Instead of headcount levels closely synchronizing with production demand as taught in school, headcount levels consistently trail increasing demand and are adjusted even less frequently on the downside of any demand curve. Instead of relatively small incremental adjustments that might actually line up with normal job churn attrition over the course of a year, needed reductions queue up and become mass layoffs, dumping a much larger set of similar workers into the job market at the same time, causing more difficulty in obtaining new employment. Visually, the result looks like this:

Regulatory Failure

All of the behaviors described previously take place in any significantly large company with hundreds or thousands of employees. Obviously, looming financial problems are harder to ignore for smaller companies lacking the financial inertia of firms with millions or billions in revenue but the principals at work are identical. A unique factor in the current environment is many of the most notable corporations tied to large layoffs appear to be among the most profitable firms in the economy. One immediate response to that observation is SEE? That's why these companies are so profitable… They are immediately leveraging new technologies and laying off unneeded workers the second they are no longer needed. Isn't that what business school theory says they SHOULD be doing?

Excellent counterpoint.

Theoretically, that counterpoint might be valid in some cases. However, the biggest firms tied to this "flattening" share at least some non-coincidental traits:

• They develop software for core AI algorithms
• They develop hardware optimized to execute AI algorithms at vast scales
• They sell "compute" (processing power, storage and network connectivity) required to develop and operate AI systems at vast scales
• Their AI development work has violated copyrights and intellectual property rights of literally MILLIONS of individuals around the world.
• Their EXISTING online platforms SHOULD require vast amounts of human labor to accurately / fairly enforce copyright, intellectual property rights and CSAM (Child Sexual Abuse Material) protections yet NONE of these firms meaningfully handle these responsibilities, saving themselves billions in costs while creating a wild west online environment.
• Their NEW online AI platforms should ALSO be requiring vast amounts of human labor to properly test these systems for proper guardrails yet NONE of these firms have devoted meaningful resources for properly testing this unproven technology – the entire world is beta testing these technologies in the real world.

Underpinning all of these factors is that many of these existing firms (Google, Microsoft, Meta/Facebook, Amazon, Apple) are gargantuan in every measure of power. Meta is currently the smallest of these firms and its market capitalization is $1.941 trillion dollars. Microsoft is currently the largest among this group by market capitalization at $3.9 trillion dollars. Nvidia is currently THE largest corporation by market capitalization at a staggering $4.5 trillion dollars but they have NOT engaged in mass layoffs… at least yet.

It is absolutely the case that there are characteristics of the computer software and hardware industries that provide economies of scale that make operating these types of businesses at these scales extremely profitable. However, there is nothing unique about the computer software and hardware industries that negate lessons learned over centuries about the harm done to society by monopolies. In every generation, in every economy, in every sector, monopolies reduce supply, raise prices, limit choice and stifle innovation. EVERY. TIME.

The unique aspects of these firms and their line of business do not mitigate these damages, they make them far worse. By limiting choice and innovation in the functionality of systems used as mass media for news, marketing and personal communication, firms operating at these scales are creating distinctly high levels of damage to the societies in which they operate. Damage which should have been corrected ten to fifteen years into their existence through proper enforcement of anti-trust laws already on the books.

So why are these tech giants making such large staffing cuts amid record profits? Quite simply, because ongoing operation as monopolies with little meaningful correcting influence by the government has trained them to believe they can continue developing more software and hardware used for ever more critical purposes with less quality control and continue to enjoy all of the upside. All of the downside stemming from poor, un-innovative design and non-existent quality control becomes an externality applied to customers who pay extra on patching buggy systems or buying even more software automation to monitor and correct security problems produced by these products. And all of the traffic that used to arrive on web sites looking for content or product information simply disappears gradually or all at once as AI summaries make click-through to original content pointless. How can a small company prove a giant Goliath stole a click that never arrived? In such an insular environment, there's no incentive to retain extra staff beyond what's required to deploy the next buggy release. As Martin Weir of Get Shorty might have asked… What's my motivation (to do anything different)?

Back to the Larger Great Flattening

So if these tech giants already making oodles of money off AI technology are just obeying their monopolistic instincts, what is motivating companies in the larger economy? Again, the motivations affecting these big tech firms are only unique in their MAGNITUDE, not their KIND. All of the human behavior patterns discussed previously take place in every company. All of those behaviors create lag effects that build up over decades and, like water, become invisible to the fish swimming in the corporate environment. So why do these job reductions seem to be concentrated on the vaunted "knowledge workers" of only a decade ago?

Multiple reasons...

First, by definition "knowledge worker" tasks such as software coding, software testing, software requirements writing, budget analysis, etc. all involve a great deal of reading, writing and summarization and 100% of it is done electronically in Word documents, emails and spreadsheets. This is the perfect work product for slurping into an AI training cycle and entering into an AI prompt for new content since the source "knowledge" and "ask" are all in text format suitable for processing with Large Language Model based tools. In contrast, it could be forever before AI systems come after the jobs of carpenters, roofers, plumbers, barbers, dentists and surgeons. It will prove impractical to devise a robotic system that can perform a task which is intensive for both physicality and skill. Fast food jobs are different because they are highly specialized and simplified to require virtually zero training or physical strength / skill.

Second, as the innovations of the first Internet technology wave of 1996 to 2004 took root in corporations, most recognized the need to redesign corporate systems for commerce, internal production and order fulfillment which triggered a stream of internal software development projects to design customer portal websites, internal customer service agent tools, etc. Applications which may have only started with the need to serve up simple pages to hundreds or thousands of users per day rapidly grew to where the system needed to support thousands of users per minute. These development efforts required more formal design and planning to keep them remotely near their budgets and delivery dates. This not only resulted in hiring more developers and testers but people with new-fangled responsibilities manufactured as part of new software development processes that promised to solve all of the productivity and quality problems that exploded with this crush of work. Few of those new methodologies worked as claimed yet the new functions became ingrained in headcount charts across nearly every corporation.

When the second "big data" technology wave arrived between 2004 and 2016, all of these existing poorly implemented systems developed in the first wave often underwent "enhancements" to tie them together with real time feeds or leverage massive data repositories to automate customer service inquiries and trouble diagnostics. This work required even more rounds of development with all of these new software development lifecycle (SDLC) processes requiring even MORE of these workers who weren't actually tied to core development or testing of code. An application whose original iteration in 2000 might have taken 15-20 people to code, test and deploy over 9 months might now be assigned 75-100 people over 15-18 months to refactor for supporting iPhone, Android and web views. Curiously, the count of actual CODERS and TESTERS might still only be 20-25 people.

In short, software development processes in most corporations are incredibly bloated with headcount that never touches a line of code during development or testing and has no involvement with deploying, running and monitoring the system in production. Within development circles, the term "10x developer" is commonly thrown around when talking about "productivity." Productivity for developers is inherently difficult to quantify consistently / fairly – is "more source code" for a given problem "more" productive than less source code? NO. Is faster calendar delivery of code better than slower calendar delivery of code? NOT NECESSARILY. In general, this "10x developer" concept describes a pattern seen in nearly every large development organization. A pattern where it seems like in a team of twenty developers, a small subset, maybe only four – seem to do 80% of all of the development of code that reaches production. This is seldom quantified or proven but based on decades of experience, the SENSE of this definitely does ring true for actual coding work. When applied to the larger collection of headcount AROUND core development but not DOING core development, it is ABSOLUTELY the case. This means that there is likely a large number of people who describe their role as related to software development who actually never write a single line of SQL, C#, Java or Python yet count themselves as developers when laid off. They are not.

Lastly, this "overhang" of dead weight in these indirect job functions related to software projects have gone uncorrected over the last twenty years precisely because of the empire building and turf-protecting patterns described previously. Many of these roles were not added to the managers operating actual development teams but separate "project management" teams operating in parallel within the development organization. That organizational chart design choice immediately destroyed any incentive to eliminate job functions that had no demonstrable effect on productivity or quality and instead created a new turf to be defended and even expanded to justify the existence of new chains of management. Ask any person employed in an IT organization that has adopted "Agile" development in the last decade and they will confirm this phenomena.

As a final factor acting to cement this inefficiency into organizations, the rapid evolution of software architectures has virtually guaranteed any mid-level technical managers have zero intuition for appropriate technical designs and required development time for current applications. Architectures have evolved from mainframe apps in the 1960s and 1970s to isolated desktop apps in the 1980s to client/server applications in the early 1990s to server-based web portals from roughly 1995 to 2010 to browser / smartphone centric apps from 2015 to the present. Any mid-level or senior-level IT leader has experience that is likely two generations out of date, making it very difficult for them to argue against the continued use of these inefficient practices that contribute to so much headcount bloat. They may recognize it intuitively but they are unable to articulate the problem effectively to convince everyone else to abandon a failing methodology.

The net-net of all of the above is that IT roles in particular seem uniquely primed for cutbacks even without Artificial Intelligence solutions promising productivity improvements. Artificial Intelligence merely provides an easy EXTERNAL excuse to make these giant corrections without existing management having to state these inefficiencies were present all along and should have been identified and eliminated over the last ten to fifteen years.

For functions outside IT like financial analysis, the rationale might be similar but not as exaggerated. Large corporations typically create special budget analysis teams that operate in parallel with large departments like IT, Customer Service, Manufacturing, etc and use data collected from payroll and ERP systems to track departmental spending against budgets on a weekly basis. At my former employer, this continuous true-up process was a joke and a nightmare because data quality in the source systems was sketchy and the analysis and true-ups were performed in Excel (in a department spending $100 million per year in expense and $50+ million in capital). At some level, the entire exercise was even more pointless because at any point in the year, approved capital dollars might be reduced or eliminated for a project with zero notice, requiring panicked rebalancing and reprioritization of work. If reports confirmed a project was going to materially overspend but the project was tied to a pet executive goal, funds WOULD be found, making the time spent truing up the data by mid-level managers worthless. In these types of environments, it's possible this brain damage could be done equally well by AI based tools that could skim the source data and produce the same summary Excel spreadsheets and PowerPoint bullet summaries. The analysis was already consistently flawed, why not let AI do it and let five budgeteers per department go?

Implications for the Future Job Market

Any analysis of future impacts from this wave of layoffs must address three different pools of workers which will be termed here 1) core IT workers, 2) near-IT workers, 3) analysis / reporting workers, 4) entry level workers.

For core IT workers directly writing code or testing code or peforming work that directly affects functionality being built, there will likely be continued pressure on eliminating roles in this area until the longer life-cycle impacts of involving AI systems in development become known. Experts in development have already commented that AI excels at developing SMALL bits of STANDALONE code and can outperform most developers at that function. This same analysis has confirmed that AI is exceedingly poor at developing small code changes to EXISTING complicated systems or designing and creating code for LARGE systems integrated to multiple other systems. That's no guarantee that an executive hearing an external vendor or consultant whisper in their ear about how they can rewrite all of your systems with an AI for a mere $4 million won't take that bet and try it. However, it seems highly unlikely AI will be able to replace compentent core developers doing real integration work in a typical corporate "enterprise" setting in the next five to ten years.

For "near-IT" workers, those working in proximity to actual development work and trying to translate internal development mumbo jump like stories, sprints, epics, roadmaps, backlog, burndown, retrospectives, etc. into upper management speak, the attempt to adopt AI for that reporting could likely be the straw that breaks the back of the camel known as agile and leads management to abandon most of this noise. If this is what you do for a living, it is likely the number of openings for this work will decline rapidly, meriting a pivot to other work.

For analysis / reporting workers, the impact of AI on these types of reporting roles is likely to be similar but smaller in magnitude than the impact forecasted for "near-IT" workers. Simply put, most of the reporting and detail tracked by near-IT workers made sense to few inside IT and made ZERO sense to anyone outside IT including clients who relied on IT to build their systems. Financial and operational reporting is different. It can have material impacts on processes that affect publicly reported numbers on quarterly statements and – let's face it – MONEY means much more to any executive than technical gobbledygook about "development sprints" on an "agile project" building a portal for Customer Service. As a result, the internal consumers of this "non-IT" reporting are FAR more conservative about changing ANYTHING in the process and will be very slow to trust any change in those processes. That being said, remaining in this line of work merits broadening your skills to learn how AI can provide a front-end to existing ETL (Extract / Transform / Load) tools that might be in use today to compile data being summarized and audited and mastering those tools.

For entry-level workers, frankly the outlook is easier to predict. The types of work outlined above often provided opportunities for entry level workers or as promotional slots which freed up slots for new entry-level workers. Any management trend that eliminates five or ten percent of jobs in any company, even if the elimination targets mid-career functions, inevitably harms entry level opportunities by reducing the total number of slots for people to move up to to vacate lower level jobs.

It might be possible to suggest (hope?) that one possible outcome of this introduction of AI to push out a share of mid-career workers is that people in many other mid-career roles with aversions to technology may choose to leave those roles as well as they are forced to interact with AI-adjusted processes. If this were to happen, it MIGHT open up remaining positions to people more comfortable with AI, providing an opportunity. Maybe… But those few openings would not only require familiarity with and confidence using AI for assembling that reporting but would still require significant understanding of the underlying business processes being tracked at both a financial and needs-of-the-business level. Domain expertise as it is termed within industries.

For existing employees at all levels, one final general piece of advice would be to begin formulating an understanding in your mind about the degree to which the management above you tends to exhibit a steady hand on the proverbial wheel or follows the latest management fads or advice from expensive consultants that never seem to leave the executive floor in the building. If you feel your management tends to follow fads, especially those in disciplines they already do not seem interested in understanding, I would pay very close attention to the introduction of any tools or systems tagged as "AI", especially when they directly impact your job role. Trust you instincts if you suspect you have become a target for elimination and plan accordingly.

The most useful advice for new graduates and those in college looking at an employment landscape being re-sculpted by AI like a combination tsunami, earthquake and hurricane might be this. Ensure you learn the basic fundamentals of AI from a terminology and functionality perspective. This does not involve reading and memorizing the whitepaper Attention is All You Need and understanding the matrix algebra therein. Ensure you understand how AI systems encode data, train on it, then use it for processing and the shortcomings of those processes. (HINT: Read up on the variability of training data in different languages and the selection of sources that provided the petabytes of data needed to improve system metrics.) If you are still in school, to the extent possible, fit courses providing basic insight into business operations, accounting or marketing into your remaining coursework to gain familiarity with how "business" people think and the terminology they use to describe their work. Over the course of a career, being able to converse in business terms with different teams across a company will be more valuable than knowing how to generate a bitchin' graph of revenue across products over the last two years. If you're a recent graduate still looking for a first full-time job, work to develop a conversational familiarity with the basics of AI and as best you can, ask implicitly or explicitly during any interviews how the prospective employer is approaching AI as it relates to the role you're considering.

WTH